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Dr John Hewson MP address in reply to the prime minister's economic statement



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Leader of the Opposition

DR JOHN HEWSON MP

ADDRESS IN REPLY

TO THE PRIME MINISTER’S ECONOMIC STATEMENT

PARLIAMENT HOUSE CANBERRA

THURSDAY, 27 FEBRUARY 1992

COMMONWEALTH P A R L IA M E N T A R Y LIBRARY MIC AH

Parliament House, Canberra, A.C.T. 2600 Phone 277 4022

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Last night's economic statement delivered by the Prime Minister had two principal purposes - an economic purpose and a political purpose.

Politically it was billed as a test of the Prime Minister's fitness for the job. It also had to provide a response to our Fightback! package, and of course to improve the Government's very low electoral standing.

As an economic document it should have been designed to give hope to the people of Australia during the worst recession since the Great Depression - to give a sense of direction, a sense of vision to their future, and of course, to be fiscally responsible in the way it went about creating jobs.

It failed on all counts. A total failure. It offers no real hope to Australians. Its only sense of vision runs through to the next election and it's designed to boost the popularity of the Prime Minister. And push the problem out beyond the next election. And of course, as far as Fightback! goes, it highlights the strength of Fightback!, as well as picking up a few pieces of Fightback! It highlights the strengths of Fightback! and its basic thrust towards genuine structural reform, which is the only way to rebuild the Australian economy and the lives of average Australians.

And it doesn't deliver sustainable job growth, as I will show in my remarks later on.

Indeed, when we look at it as an economic document, it is fiscally irresponsible. It's got about $18 billion which is unfunded, which will have its significant effects down the track on interest rates and on debt and the balance of payments and major economic hardship for average Australians.

But most important is the test of the Prime Minister's fitness for office - a man who has barely got the majority of his Party behind him. It revealed his capacity for shameless pork-barrelling - the fact that he'll do anything or say anything to get himself re-elected. The extent to which he's been tied and held and throttled by factions, so he failed himself. He failed his Party, and he failed the people of Australia.

The first test of this statement should have been to give an honest and open assessment of where this economy is at the present time. It should have been to give us a statement of the nature of our economic circumstances in the worst recession in 60 years. But it didn't do that. Not a word. It's not for me tonight to remind the people of Australia as to the magnitude of the problem. But it is worth putting some of the more important features on the record as a background to what I've got to say.

GDP has fallen in this recession by 3.2%. That's about 7% below where it otherwise would have been in normal circumstances. Bankruptcies are up 144% since March 1989. There's been a 21% fall in private sector investment. The number of people

in employment has fallen by 192,000 since July 1990. The number of people unemployed in this recession has gone up by 418,000 since October 1989. Now

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920.000 Australians are officially unemployed. 760,000 Australians on the dole. And one and a half million people who haven't got a job or can't get the hours of work that they want.

But among those unemployment numbers are some very real examples of hardship. There are 262,000 families that have the chief breadwinner unemployed - which is up 40% in just the last year. There are 218,000 Australian children living in a

family where no-one has a job - which is up 40% in the last year. There are 248,000 Australians that have been unemployed for more than a year. That's an 88% increase in just the last 12 months. There are 500,000 children living in poverty.

75.000 homeless, and an extra 140,000 families a year have been plunged into extended poverty because of this recession.

Youth unemployment in Australia is around 30%, but in some of the regional areas outside Sydney and Melbourne it's as high as 40 or 50%. There are 60,000 young Australians that couldn't get into university this year, and there are nearly 100,000 young Australians that couldn't get into TAFE or technical colleges.

There are 60,000 Australians currently on the public hospital waiting lists. Juvenile crime is up 5-fold. Last night, and every night, the Salvation Army cared for 1000 homeless persons; given away 300 food parcels or vouchers; and provided 2000 meals. And over the past year, the St Vincent de Paul Society has experienced an increase of 30% in the number of people wanting help.

Now you don't like it. But you've got to hear it. Because that's the background of the economy that you have created. And that's the background against which this statement has to be brought down.

And can you imagine against that background that this man didn't go to the heart of our problems. He didn't try and make substantial change to our economic circumstances and our economic policies.

Well let's hope that out of all this economic damage that this nation, and hopefully in the end, this Prime Minister has learnt something from the worst recession in 60 years.

We now know we must act together to make sure we don't repeat the same mistakes. And some very real mistakes - some very tragic mistakes - were made in the course of the 1980s that plunged this country into this recession. We must learn, in

particular - which this man hasn't yet learned - that governments can't spend what they don't have. And you've gone into this package on a spending spree unequalled in this country. A spending spree which shows total disregard for the fact that you are unable to raise the money to pay for that.

We've got to turn our back, as a nation, on the quick fix. We've got to turn our back on the political bribe, or the attempt at short-term job creation, the wild boom-bust mentality of the 1980s. We've got to put those sort of experiences behind us and learn from them as we come to address the basic problems which confront this

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country.

Because if we don't, we won't just have to worry about the prospects over the next two to three years. But we'll have to worry about the prospects for our children and our grandchildren. And right now, this current generation is about to leave a lower standard of living to its children and its grandchildren that it itself has enjoyed for the first time in our history.

The tragedy of course, is that Australia is a very wealthy country and a well-located country with an abundance of natural resources, a well educated and articulate workforce, and an enormous amount of opportunity. Now what that should tell you is that things don't have to be the way they are at the present time.

We can have a different country and a better kind of country. We can be a major player, for example, in the Asia-Pacific region. In the course of this decade, if we set about putting our house in order, we can be looked up to by the region, rather than looked down on by the region, as we are at the present time.

We can become one of the region's major exporters of course, of agricultural products, of minerals, of value-added products in both those areas. We can become a very successful manufacturing base for the region, and we can become a major exporter of tourism services, education and other services to the region.

We can, for some specific examples, become the second most important financial centre after Tokyo in the Asia-Pacific region. A major exporter of education, medical and legal services. We can even develop a dynamic car industry among the manufacturing industries if we get the attitude to manufacturing right, which isn't embodied in this package.

We can also, finally, become a centre of excellence in research and development using the talents of Australians as a back-up for that industrial base.

And finally, we can become a major tourist destination for the region. We can quadruple the number of tourists we take in Australia by the Year 2000. That's 10 million - if we get on and do what's required to turn this country around.

But there's only one way to achieve that sort of vision for this country - and it isn't by throwing money at it. It isn't by pork-barrelling. It isn't by short-term dashes for growth. It is by facing the very fundamental fact that this country isn't matching the best in the world - that it has major inefficiencies which have to be

eliminated; major cost disadvantages which have to be eliminated, in order to turn our circumstances around.

There are no quick fixes. There are no easy ways to stimulate the economy and solve the problem. There's just the very hard, difficult, thorough process of structural reform which has been rejected by this government.

And the comparison that can be drawn between us and this Government is the

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Fightback! package that I brought down does that. The Liberal/National Coalition Fightback! package can deliver that sort of vision in this country in the course of this decade if we are prepared to work together to solve those problems.

Now, as I said, there are a lot of reasons why this statement fails, but perhaps the principle reason - its single greatest failing - is that there is no structural reform in the statement and hence there will be no sustainable job growth as a result of this statement that was brought down last night.

Let me use a few examples just to make the point. Let's look at one of the central features of structural reform in this country that this statement does nothing about and that is labour market reform. There is a section on labour market reform where they try to neutralise the differences between us and them by referring to enterprising bargaining - as if they were going to embrace enterprise bargaining. That is all we are told.

They have been saying that now for several years with no substance. What about doing something fundamental about some of the other basic problems in labour market; some of the atrocious work and management practices? Why didn't you mention something about penalty rates; or leave loadings; or why didn't you create the circumstances where there could be direct negotiation between employees and employers at the workforce? Why did you outlaw closed shops? Why did you outlaw compulsory unionism? Why didn't you get rid of the "no ticket no start" practices? Why didn't you get rid of a host of those other sorts of allowances we've heard of. Heat allowances; hot weather allowances; cold weather allowances; even dim sim allowances. Why didn't you foreshadow some of those fundamental changes which make us structurally inefficient in terms of our labour market relative to the rest of the world?

Secondly, of course, the statement does nothing fundamentally to reform the tax system. There is a bit of tinkering with the tax system. There is a very strange effort for a Labor government to hit the poor as a result of the tax changes relative to the rich.

But there is no substantial change in the tax system under this Government. In fact there is a very important group of people, nearly 4 million Australians, nearly 50 per cent of tax payers who earn less than about $20,000 - $21,000 a year: people like women; people like farmers; people like the aged; the pensioners; the retirees; other beneficiaries; students. Four million of them - the forgotten people - under the $20,000 - $21,000 who don't get any tax cuts, no tax cuts out of this statement. And there is no attempt to abolish sales tax. No attempt to abolish payroll tax. No attempt to abolish petrol excise tax. No attempt to abolish lump sum superannuation tax. No genuine reform in this statement as far as taxation is concerned. No attempt to lower real interest rates. No attempt to produce a more competitive exchange rate indeed you risk the possibility that real interest rates will go up as a result of your statement and the exchange rate will further appreciate and this country will go even further into recession. That is the sort of economic risk you have taken.

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Also, look at the waterfront. What reform has there been in this statement of the waterfront. Some of the notorious practices that we've seen over the years on the waterfront. For example, let's be frank, the Government says it is proud of its waterfront reform. In September last year, after your much vaunted enterprise agreements were put in place, Australian wharfies earned $47,000 a year for an average of 21 hours per week. And the port of Sydney, the flagship of reform, idle time - that is the time that wharfies spend either going home playing cards or if they like, fishing off the wharf - is increased from 11-30 per cent thanks to two years of the waterfront reform process. You are going backwards under your so-

called waterfront reform agenda.

Let's take an example where you claim to do something - rail transport. You claim to actually make some headway with rail transport in this package and you say that you are going to do this by building a nice new glossy train line from Brisbane all the way to Perth. You understate the costs of that, by the way, in the package but you are going to build a nice effective railway right from Brisbane to Perth.

But that is not going to make much difference if you don't do anything about the fundamental inefficiencies in the rail industry. The rail industry has lost about $20 billion in the last 10 years - what is glossy new train line going to do? Give them the chance to lose even more money on the basis of a glossy new rail line. You've got to go to the heart of the work and management practices if you are going to deal with those problems in the railway. I'm told, for example, that it is cheaper in Victoria to close down the rail system and give every commuter a small car, just to be clear, every commuter a small car than it is to try and run the railway. What do you do about those basic inefficiencies?

We've seen examples of train stations where trains don't stop but they have got as many as 26 people manning them. We've seen examples of fireman on electric trains - a host of other work and management practices really which make the railways grossly inefficient.

And so we could go to any other area of reform and we see no significant improvement - whether you addressed it in the statement or not. Look at telecommunications, for example. In the very year, in the last twelve months, where

you scrapped the two airline policy, you move on to a two telephone policy. Still one union but now two players in the system.

There will be no genuine reform in telecommunications and the Prime Minister, better than anyone else, knows that because he, after all, advocated a different outcome than has in fact been pursued by the Government of this time. Look at

shipping, look at coastal shipping - look at Trans-Tasman shipping. New Zealand, for example, has imported gypsum from Mexico rather than Australia and sugar from Thailand rather than Australia because of the expense of the Trans-Tasman shipping line. And just last year an Australian farmer sought to send a container of peas from Tasmania to Fremantle - a container of peas from Tasmania to Fremantle. The lowest quote he received was almost twice as high as the quotes for

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taking the same container from Tasmania to either Europe or Japan. They're the sort of massive inefficiencies that exist in this system - work and management practices all over the place that desperately need to be addressed if we are going to turn our circumstances around.

What about privatisation? You say you've started to embrace privatisation. Well, selling 49% of Qantas is a waste of time. Why don't you sell 100% of Qantas and put it into place and go on and sell the rest of the Commonwealth Bank? Governments shouldn't be running banks and airlines and particularly the way you guys have been running them with massive losses, massive debts and massive inefficiencies.

This statement is a massive failure. Just to be clear, the Leader of the House might like to pay attention, this statement is a massive failure of courage and nerve on the part of the new Prime Minister. Without structural reform it doesn't matter about your capital works - they are not going to work. Without structural reform you are

not going to be able to get ahead.

By comparison Fightback! does it all. Fightback! actually addresses all these problems. Fightback! has an integrated package of 20 separate policy initiatives to deal with labour market reform, tax reform; genuine commitments to major reform, abolition of sales tax, abolition of payroll tax. You want to create jobs - even the Prime Minister back in 1977 was talking about the abolition of payroll tax - it was a good idea it could create as many as 200,000 jobs. So why didn't you do it? Why do you support a system that taxes employment. We are offering the largest personal income tax cuts in history - we are offering to eliminate the 20-50% cost disadvantages that I've just referred to that flow in all those infrastructure areas as a result of the massive work and management, lack of competition and other reasons in each of those infrastructure areas that I cited. We spell out a co-ordinated anti­ inflationary strategy. We reduce and eliminate wasteful and unnecessary government expenditure by $10 billion and that is the only way to get genuine tax reform - and you know it. The only way is to cut government expenditure.

We have a major program of privatising Commonwealth authorities, a major national savings strategy for both short term savings and superannuation; new programs in education and training that cost as much as $3 billion over the decade; a new range of initiatives for the unemployed; a new private health insurance tax credit system; new superannuation tax rebates; cuts in short-term migration; reform of Commonwealth/State financial relations. We do it all.

And you go through your package and see what you haven't done. One of the tragedies of this Prime Minister is that in the many of the things that I've just referred to, in many cases in the past, he himself has advocated them. For example, the introduction of a broad-based goods and services tax in 1985. He still has on record the best case for a broad-based goods and services tax.

Telecommunications reform - he did not support the two telephone policy of this Government.

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Coronation Hill - he used to believe Coronation Hill should be mined. He did deals on Coronation Hill in order to get the leadership. He has done deals on immigration cuts, he hasn't done anything about that in the package either. Resource security legislation, he lectured the mining industry about how it was a hopeless piece of legislation and then, what is he doing, in the package pursuing it. Three mines uranium policy, so I can go on. This man will say or do anything for short term political support. And this document therefore fails dramatically as a political

exercise on behalf of this man trying to rebuild his credibility with the Australian electorate. And trying to develop an effective competitor to Fightback!, which it isn't. It is a sad and failed alternative approach at the very best.

Now, let's just look at the economics of the statement. Remember the lectures we got from this Prime Minister over the last three years when he was Treasurer - and the ex-Prime Minister - about what our basic problems were in Australia. Our basic problem was, I was told, we spend too much relative to what we produce. Too much spending, too little saving, too much debt, too little production. And what does his package promise? What did his package promise? Even more spending, even less saving, even more debt and little improvement in our productive capacity - if any at all.

And just to make this point Mr Speaker, veiy clearly for the new Prime Minister. We took the Murphy model and you all know Dr Murphy because this Prime Minister has been parading Dr Murphy around as an accepted domestic and international expert for the best part of the last week or so. He came out of the

Treasury under this Treasurer, so we took his model and ran your package through it. We put your expenditure in it and we put...(interjection)...you see, we can't believe your forecasts because they are not forecasts, we get told they are projections.

Treasury has disowned them, they have put some qualifications in the text to tell you these aren't forecasts, they're projections. And by the way, the projections will only come good if a whole ocean of things happen which they don't believe are going to happen - they have washed their hands of it, the work was done in your office

and you know it.

Anyway, we ran through the Murphy model just to see if your grand play tally stacks up. What you said about inflation, what you said about growth, what you said about the current account deficit. And it would pay you, Prime Minister, to listen to the outcome of this study, because this is a very significant criticism. Very significant criticism of your package...(interjection)...look if we are going to have a sensible debate, I am prepared to put the detail of the calculations on the record and I am happy for you to make your comments on the other side. Maybe one day we will have a proper debate, when you stop running for cover. You don't front up on television, you don't front up on the radio. Last night and this morning, you and I have done dozen of radio and television interviews, we have passed each other in the corridor, but he wouldn't debate me - under no circumstances will debate this lot.

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What it shows, firstly on growth. What it shows is that GDP growth is much lower, economic growth is going to be much lower, an average of 3.3 per cent, not 4.3 per cent as you assume.

Second, inflation blows out. It doesn't stay at 3.5 to 3.75, it blows out to 6 per cent.

The current account deficit doesn't just stick around $20 billion, which ought to be alarming enough in itself. It goes as high as $27 billion.

And foreign debt, this is the bottom line, foreign debt increases by nearly $100 billion over the four years. Foreign debt will rise to $225 billion under that package, according to those simulations.

The Prime Minister says no way. I reckon our creditors will be in here first, don't you? I reckon we will have a major exchange rate crisis if this policy is going to run and I have to conclude it will never be delivered. But just to let you see how this

man thinks. He said he was going to go back to what he did best in the early part of the 1980's, which is create growth and create jobs. And he forgets to tell you that the way he does that is more debt, more debt, more debt.

So, I went back and I did the calculations. I looked at the period through to 1990­ 91,1 was generous, I counted 1.4 million jobs he says he created through that period. Do you know what it cost per job in debt? $73,000 in international debt per job. But I tell you what, he is even becoming inefficient at this. He is becoming inefficient at putting it on the international bankcard because this time, the jobs he claims to create in the course of the next four years will cost $109,000 in foreign debt per job - $109,000, grossly irresponsible.

No wonder your old mate, Max Walsh, called it reckless. No wonder every informed commentator in the country has canned your approach to this particular package. They see it as a short sighted politically expedient document designed to try and get you back into Government at the next election and to push the problems out way beyond the next election.

Let me tell you on those numbers, that is not going to happen. Simon Crean, you better get ready mate. I think you are going to get a run!

I think you are going to get a run in the course of the next few months when this package, and this man, falls over - it is undeliverable.

Well finally Mr Speaker, in conclusion, the Prime Minister and I do agree on one thing. And I have got to be honest on this, we do agree on one thing. And that is that the people of Australia ought to be given a clear choice at the next election and you can bet your bottom dollar that we are going to give them a clear choice at the

next election. You run on this package and this disaster that is in prospect and we will run on Fightback!

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Why don't we start with a particular challenge. You are going to have the Wills by­ election coming up sometime in the next couple of months. Why don't you turn the Wills by-election into a general election.

...(applause)...

Why don't you turn the Wills by-election into a general election, give the Australian people the chance to Fightback!